In markets prices move toward equilibrium because of?
In markets prices move toward equilibrium because of the fundamental economic concept of supply and demand.
The law of supply and demand states that the price of a product or service will be determined by the balance between the amount of supply that producers are willing and able to offer and the amount of demand that buyers are willing and able to purchase at a given price.
When demand exceeds supply, prices tend to rise as buyers are willing to pay more to secure the limited quantity of the product.
As prices rise, producers are incentivized to increase their supply, leading to a decrease in prices. On the other hand, when supply exceeds demand, prices tend to fall as producers must lower prices to attract buyers.
As prices fall, buyers are incentivized to purchase more, leading to an increase in demand and an eventual increase in prices.
Also Read: Another term for equilibrium price is?
In summary, the interplay between supply and demand determines the equilibrium price at which the quantity demanded is equal to the quantity supplied, resulting in a state of balance in the market.